 Gemell ymlaeni. Welcome to the Rural Economy and Connectivity Committee's second meeting in 2019. Can I ask you please to make sure that your mobile phones are on silent? We are going to move on to a gender item 2, which is budget scrutiny. This is an evidence session on the Scottish Government's draft budget 2019 tentative, with two Government cabinet secretaries in two separate sessions. The first panel this morning, I'd like to welcome, focus you in Cabinet Secretary for the Rural Economy, Andrew Watson, the Deputy Director for Agricultural Policy Implementation, David Blair, Head of Budget Challenge, Graham Hutton, the Head of A.R.E. Finance, Kirstine Beddow's branch head, C.A.P. GM Policy and Agriculture Climate Change. That's quite a long title there. And Joe O'Hara, the Head of Forestry Commission Scotland. Cabinet Secretary, would you like to make a brief opening statement of up to three minutes, please? Thank you, convener, and good morning, everybody. This is a challenging budget, first UK austerity, second loss of EU funding. I would add to that the potentially cataclysmic and catastrophic impact on the rural economy were there to be a Brexit no deal, and I cannot emphasise that risk enough. Convener, in short, we seek a sustainable and prosperous rural Scotland. The rural economy budget reflects the removal of transport and connectivity during the year. On a like-for-like basis, the budget is essentially flat in cash terms, dropping by 0.9 million, 0.2 per cent or 2 per cent in real terms. I'll briefly outline some key choices. This £580 million budget aims to provide financial security and certainty to Scotland's farmers and crofters by delivering the C.A.P. and to ensure that farmers receive payments promptly. I remain committed to the rural development programme, including continued support for agri-environment, farm advice, crofting and the food and drink sector. I've committed to maintaining payments at the maximum level permitted for the less-favoured area support scheme. I'm not prepared to see levels of support drop below 80 per cent. We're working to stabilise and simplify financial support policies for farming food production after EU exit. Turning to rural services, my priorities include delivering world-class science support to protect Scotland from plant disease, spending £23 million on animal welfare and statutory vet services, investing more than £6.5 million in our world-class food and drink sector, and in a food and drink export plan to build on the growth in that sector. The rural economy budget supports Scotland's marine and coastal communities. We will maximise the benefits of EMFF to support key projects, will protect Scottish interests in the negotiation of fishing opportunities, and build on the strengths of our aquaculture sector, adding value to many significant investments in remote rural areas. The rural budget provides substantial support to rural businesses and social enterprises to generate inclusive economic growth, providing more than £74 million of funding to our rural enterprise bodies, which includes supporting the South of Scotland economic partnership and the EU Enterprise Agency for the South of Scotland. We invest nearly £59 million in forestry priorities, expanding woodland creation, delivering benefits for the economy, people and the environment. We will introduce new arrangements for management of forestry in Scotland under the Forestry and Land Management Scotland Act 2018, and stimulate and enable woodland creation across Scotland to achieve our targets. Convener, this is a good settlement for the rural economy. It is fair and realistic. Through efficiencies, the natural end of some projects, and substantial income generation from timber sales, I can meet my commitments to rural communities and act collegiately with my cabinet colleagues to support wider Scottish Government priorities. I am confident in the choices that I have made and that they will deliver for our rural communities. I am happy to take questions along with my officials today. Thank you, cabinet secretary. The first question will be from the deputy convener, Gail Ross. Oh, yes. Sorry. Absolutely. Thank you for reminding me, deputy convener. I should, before we go into the questions, remind members that if there are any declarations of interest that we should make them before we ask the cabinet secretary. I will start off by declaring that I have an interest in a farming partnership that has declared in my register of interest. I, likewise, would like to declare an interest as a member of a farming partnership as well. Primarily, because I am not asking questions on rural today or expecting to, I declare for the second session that I am honouring president of the Scottish Association for Public Transport, honouring vice-president of the Royal Future UK. I do have a very small interest in a registered agriculture holding. Anyone else wish to make? No. Sorry. I will now, as I have been corrected and rightly so, pass you to the deputy convener, Gail Ross, for the first question. Thank you, convener. Good morning, panel cabinet secretary. We have in our papers here a statement that says, this year, for the first time, the total operating costs for the Scottish Government have been aligned with the portfolio budgets that they support. We see here that the rural economies operating costs are £89 million. Can you explain to us and take us through how these operating costs are actually spent? Thank you, Gail Ross, for that question. The operating cost budget has increased by £37 million in the single year, but it is not comparable with previous years. The true growth is around 4 per cent and the change supports much greater scrutiny of operating costs, particularly over time, as we continue to present operating costs in this way in future years. The increase in rural economy operating costs previously held under the separate CAP compliance budget line, an element of resource that was previously within the administration budget, an allowance for pay inflation and preparatory work for EU exit, Brexit issues alongside business's usual delivery of CAP implementation, animal health and welfare services, agricultural science and support for agriculture, crofting and the rural economy policies. I know that officials should be able to provide more detail if that is required, convener, and we can always write with more detail should that be required, but that is the headline explanation for the figures this year. Thank you, cabinet secretary. I think that we would like to get some more detail if that can be provided. The majority of that operating budget relates to the agriculture rural economy directorate within Scottish Government. We have close to 1,000 staff, so it is a very significant part of the Scottish Government's total staffing complement. The majority of the operating costs relate to that part of Mr Ewing's portfolio, but clearly there are other elements of the portfolio that are funded through that as well. As Mr Ewing describes, across Scottish Government there has been a change in the budget presentation this year around operating costs. At the back of the budget, there is quite a substantial explanation of how that has been derived, annex G, in the document. That sets out that, on a roughly like-for-like basis, the year and year change in the operating costs is around £4 million for the rural economy portfolio rather than the headline 37 that is elsewhere in the document. We can obviously provide more information in writing if it is helpful, but annex G sets out quite a clear explanation of why there is a change this year. Do you see any possibility of reducing those operating costs in the future at all? At the moment, our current projections are for a pre-steady state in our resourcing, particularly in the agriculture and rural economy directorate, which I know the best. What we have done for the current financial year, as Mr Ewing has said, is put some resourcing to respond to the challenges presented by Brexit, so we have a dual task of business as usual plus preparing for Brexit. What we are not planning to do at the moment anyway for 2020 is significantly expand our staffing complement. Having said that, clearly events of the next few weeks will have a huge impact on our business planning for the financial year 2020. We are no different in that respect from many other parts of the public sector, so it is a watching brief in relation to that. However, the plans set out in the draft budget are for a steady state in terms of our resourcing. The final point is that, as you will be aware from other evidence sessions, we are looking to cut back our reliance on external contractors over the current year as we transition away from the significant work around cap IT futures. That is something that we will definitely look to do as we enter a more steady state around that part of our business. I am glad that you came on to cap. I was going to ask as well about the operating costs, the ARE operating budget line. We see that it has gone from £62.9 million in 2017-18, £82 million in 2018-19 and £129.9 million in 2019-20. Can you tell us why those costs are increasing so rapidly year on year? In relation to the previous year, the 17-18 figure, the jump from that year into 2018-19, the main driver of that was a change in our depreciation budget, so it is a non-cash line in the budget. That relates to the position that we are at in terms of transitioning out of IT futures. That is not a chain, an increase that affects public services and goods. It is largely an accounting adjustment for depreciation. The jump from 2018-19 to 2019-20, as I have described on a like-for-like basis, is around £4 million. That is largely to do with pay inflation in relation to public sector pay policy for the 1,000-odd staff that we have and inflation around contractor salaries. The year-on-year change, 17-18 to 18-19, primarily to do with depreciation, 18-19 to 19-20, is a modest increase around pay inflation. How do you see that increasing as we go on? Are we going to still be spending the same amount? Is it going to go up? Can we possibly get that down? We have clear plans around efficiencies. In common with other parts of the public sector, we look to drive out efficiencies. An example of that is reducing our reliance on contractors, for example. The challenge that we have in forecasting our future cost base in staffing is Brexit. One of the reasons just now that we are such a large part of the cost of government is the impact of the regulatory position around CAP. There are large overheads in relation to our regulatory requirements, and we need staff across the country to administer that. Clearly, there are multiple scenarios around Brexit and the future of CAP. The path that we take through that will have an impact in the medium term on the number of staff we need, what they need to do and where they are located. However, as you know, it is very difficult to predict where that will head. The Government's policy just now is around stability and simplicity. As you know, we have set out a plan to get us from here to 2024 that is largely around providing stability to farmers and crofters, and you can make an assumption around that that you need broadly the same core workforce to deliver that. Clearly, that depends on certain outcomes around Brexit and CAP. Mike, do you have some questions? I want to refer to, if it is helpful, the officials might have in front of them and the minister might have in front of them. Table 12.01, spending plans level 2 is a box in there. I am just looking at the total. If you remove operating costs and non-cash and capital and financial transactions, the total cost for the rural economy goes from this current year of £362.1 million to £351 million. That is a fall of £11.1 million, which is a 3 per cent fall. Raising that because I have just heard what the minister said at the very beginning, I think that I caught him saying that it was a 0.9 per cent fall, but those figures would show that it is like a 3 per cent fall. I think that David Blair is anxious to explain the stats. There is a very simple explanation for that one, which is that the 11 per cent fall is entirely made up of our change in non-cash in Highlands and Islands Enterprise provision. If you look into the detail a little bit more, I can refer you to a particular budget of £10 million adjustment to the non-cash in Highlands and Islands. The difference is very small, and that is the 0.9 that we are talking about. The 0.9 that was quoted was the total resource spending, the manipulable spending at the discretion of the cabinet secretary. Those are the published figures. If I just focus in that box, then on the rural economy enterprise, which I assume Highlands and Islands therefore is part of, that is falling next year from £81.7 million now to £74.4 million. That accounts for £7.3 million. The page 172 of the published budget, if you look under the off-witch section of that page, so you are right to quote those figures, the non-cash element drops from £15 million to £5 million, so that is a £10 million non-cash reduction in the total resource envelope. Do you mind asking why that has happened? It is simply a matter of Highlands and Islands readjusting their depreciation estimate and submitting that. Depreciation? Yes, it is depreciation for assets. Okay, thank you. Can I just ask if the whole HIE budget and depreciation needs to be reviewed in light of the situation that has happened with Cengor Mountain? It is a matter of HIE to calculate depreciation in line with the relevant accounting standards, so they will update that in the normal course of things, depending on what assets they have at a given moment, so yes is basically the answer. They will keep that under review and we will adjust it as we go through the year and as we get to the next year's budget. There is likely to be increased costs and probably looking at the state of some of the assets to further depreciation on the assets, which have not been taken into account, especially if one looks at the state of the funicular railway at the moment. It may be that depreciation is considerably more. You are right to raise that, convener. Obviously, that is something that is occupying quite rightly a great deal of time on the part of senior management in HIE and, indeed, myself and officials. There will be funicular costs—there is no doubt about that—but those costs are not known and cannot be known at the current time. The situation, as has been made public, is that HIE instructed a firm of engineers co-wee, COWI, and its final report is expected to be made available fairly shortly. It is anticipated that that report will not, as you would expect, contain cost estimates about what is required. There will need to be a further assessment of what options, following upon the conclusions of that report, exist. The process of ascertaining what the options will be and hence moving on to cost estimates is one that involves very rigorous and careful professional advice and examination. Yes, there will be costs, but no, it is not possible for us at this current time to say what those costs are. Therefore, it is not really appropriate to make a financial provision in a budget for a contingency where there is an expectation that there will be potentially a substantial cost element, but we are simply not in a position to know what that will be. It is something that we are looking at very carefully and working very closely with HIE around. I am very pleased that HIE has acted swiftly and professionally not only to have excellent community engagement locally, but also to purchase snow-making equipment as an investment to allow skiing to continue on Cairn Gorm as has been the case, albeit in a much reduced level of activity. Just so that I can understand, if I was doing a budget and I knew there was a potential cost coming down the line on it, I would make some prudent calculations in my mind what that anticipated cost might be to allow that not to be a surprise to the budget later in the day. Are you just saying that you will deal with that when it comes along? It is not possible to know what the cost is. We know there will be a cost, but it is simply not possible before the experts have provided the report to know whether it will be a relatively modest or a very major cost. In a budgetary sense, that makes it difficult. You are right to make the point that there will be a cost, but I respectfully disagree that it is possible to assess that cost at the moment. We have given consideration to incorporating flexibility within our capital budget due to competing priorities within the portfolio. It was possible to allocate £4 million for the funicular in the 2019 and 2020 budget allocations. However, the process that I have described of expert analysis of what the options are is likely to take, and quite rightly so, some time. It took many years to decide and then construct a funicular. We will have to see how serious the criticism in the structural engineers report is and the engineers report co-wide is. However, I expect, convener, that we will need to proceed with caution in order to get further advice on that before we will be in a position to know what the bill is. However, I hope that we are all committed across all parties to ensuring continuance of successful skiing and snow sports activity on Cairn Gorm as we are in the other four outdoor resorts in Scotland. Cabinet Secretary, I guess that you and I will have a different view on budgeting and contingency planning, but John, you want to bring up a particular point. I was just to clarify and follow on from what the convener is saying. Are you saying, cabinet secretary, that if there was any extra expense in the actual year 2020, that could be managed within the overall budget? We certainly hope so. Obviously, in government, contingencies arise. Things that you cannot foresee or the quantification of which you cannot foresee arise every year. It is not possible, convener, nor is it prudent if you have 50 or 100 such contingencies to set aside an enormous amount of money in the belief that they may all fall to be and need to be dealt with in the course of one particular budget year. I am not an expert in budgetary practice. Maybe my colleagues might want to deal with the dry accountancy approach to this. We cannot simply set aside hundreds of millions of pounds in the hope that they may need to be spent in this financial year. As a dry accountancy, I am quite happy with what you have said so far. On that point, because I would like to move to another point. I just wanted to ask the obvious question. In accounting terms, is therefore being treated as a contingent liability rather than a liability? No, it does not appear in the camps then. We have not entered into any contractual liabilities at this point in time, so it is contingent. Therefore, it would not appear in the financial provision not this year anyhow. A provision has been set aside until we get a firmer figure. We will revise those estimates when more information is available. Peter, you want us to come in. Back to the agriculture and rural economy budget line. We have seen that it is more than doubled in the past three years. You have explained that most of that is about salaries in the last year. I notice that this budget also covers the IT system. We know that we have had huge problems in the past. We know that the IT system is still not fit for purpose, I would argue. How much money are we still spending on this CAP IT system? As you will be familiar with, we have given a range of evidence on that over the past few months. The budget includes the forecast of a significant reduction in capital spend on CAP IT. We are moving from a figure of around £26 million to a figure of around £11 million. Does Eddie Turnbull think that one of my colleagues has described to the committee in the past that reflects the fact that we are moving away from having delivered the core functionality from the futures programme and into a period of stability, maintenance and enhancement as we go forward? We feel that we are able to reduce our capital budget requirement for CAP IT quite significantly in 1920. You are moving away from a running cost per annum of the CAP IT project from £26 million down to £11 million. No, so just to be clear, what I am describing there is capital investment in new IT functionality rather than running costs and maintenance. The balance of expenditure will move away from building new bits of kit into maintaining what we have. However, there is always a need year on year to reflect real-world changes and respond to that. As an example, cyber security is a key issue. We need to ensure that our systems are fit for purpose in that respect, and that requires investment on an on-going basis. Basically, you are saying that the IT system, as it now stands, is pretty much fit for purpose, so it is just an on-going cost. What about looking further forward? We know that things are going to change quite dramatically as we support agriculture going forward. Does that mean that we now need to think seriously about designing a whole new system to cope with a whole new system that is coming down the road post Brexit? As you said, there is a very uncertain landscape going forward. What we have in terms of the RP&S system is a system that is rules-based and enables us to be reasonably flexible on the basis that, in the short term, certainly under a negotiated deal settlement, that is a moveable feast. We are continuing to administer schemes for a period of time that are broadly similar to the schemes that we have at the moment. If, in the long-term future, we were to move to a substantially different way of putting money into the rural economy, then clearly systems development would be part of that programme of work. It is very hard to predict where that is going to take us. What the cabinet secretary has outlined in terms of stability and simplicity is a transition period in which we will look to simplify existing cap schemes but, broadly speaking, keep that platform stable and, therefore, the IT system that we have in place is equipped to help us to deliver that. Can I just follow that up by what Peter just said? I just want to make sure that I understand that the current cap IT system is capable of functioning and working on its own and delivering the payments on time. Therefore, the extra money that you are taking to use that is just to buy additional equipment or software to protect that equipment. That is an element, so the cybersecurity piece of that is one element. Another would be any investment that is required annually if there are small changes to scheme rules, for example. Another project that we have under way is our land parcel identification system, which, again, we have given evidence on in the past. We are reaching the final stages of that programme, but it is not yet complete. The key point here is that the budget does not solely relate to the RP&S system for making payments. It relates to a suite of IT products, so we can give you some more information on that if it is helpful. I just want to drill down that the system is currently capable of making payments as it was designed to do on time with minimum input. The extra staff that were taken on to implement the failure of the system until the system was up and running are still required in the office to run that system. There are probably two parts to that. First, we have the technical expertise to develop and implement the system. That is where we are looking to significantly reduce our costs in relation to, for example, IT contractors going forward. Second, and the largest element of our staffing budget relates to all the other work that goes into the administration of CAP in Scotland. Part of that is, for example, area office staff processing payments. Significant part of that is the wide range of land inspections that we have to undertake and so on. It is not a case that we can substantially reduce our overall staffing complement because we have delivered RP&S to the place that we have delivered it, but there should be some efficiencies, particularly in that IT development space, and that is what we have budgeted for in the 2020 budget in terms of reducing that reliance. Cabinet Secretary, just to clarify from you, if I may, is that, as a computer system, it is working well and able to deliver payments. Will this be the last year of a situation where you have to have loans and, if it is working so well now, will we not have to have loans and farmers can get their payments on time, as they have done in the past, which has usually been before Christmas? Well, I was very pleased that the loan system that we introduced has allowed progressively farmers to receive most of the money earlier than they used to receive 90 per cent in October, as opposed to payments in full in December, January. As a matter of fact, most Scottish farmers receive most of the money, mostly 90 per cent, earlier than other farmers in the UK. Your question, conveners, will loans be required in future? We will keep that under review. It is a matter of judgment, and that decision will be taken by me at the appropriate time. The overriding criteria is to ensure that farmers continue to receive the funding one way or the other at the right time. That is the practical thing from a business point of view, and that is the key consideration that informs my decision making. Just this morning, I had a weekly conference call with officials about cap IT. We are well over 99 per cent of the pillar 1 payments this year of the 18-year. From memory, I think that only the tail is down to 33. Of those three, we are ineligible for a loan, and the remainder were offered a loan, and most of them took a couple loans. Even though there is a small tail remaining, in almost every case, a loan was taken up where it was due and others were offered, but not taken up. Although I am not satisfied where they are yet, convener, I will be quite candid with that. My job is to produce practical solutions, and loans, I believe, have served that purpose and served it pretty well. Therefore, if they are continued to be required, I would obviously look at that in the way that I have described with the imperative that farmers and crofters get their money on time one way or the other. I am sure that farmers will welcome that, and I am sure that they are also welcome to hear that the IT system is working. Can I go back to table 12.1 on EU support and related services? At the moment, coming year, £176.8 million. Can any of the officials—I do not expect the minister to have these facts to hand—how much does it cost to administer the £176 million that is going to farm businesses? Of that £176 million, how much extra does it cost us to administer that? Within the area operations line, as we have said, there are a number of elements. The biggest part, as Andrew has said, is the running costs effectively for the agricultural and rural economy directorate. The biggest part of that is payments and administration, which is the administration of CAP primarily. There are many other parts of the agricultural and rural economy directorate, so I want to be clear that this is not a complete—this is not all attributable to CAP, but the figure is £86.6 million in revenue. If I have got this right then, half of the budget to get £176 million, it costs us half again to get it out to—is that what you are saying? No, we do not spend half that money on administration and that is separate. What I am trying to find is a very simple question. I know that it might be difficult, but perhaps you could write to us afterwards. I would just like to know of getting that £176 million help to our farming businesses, how much does it cost us to get it to them? I think that if we can reframe that slightly, the amount of money we spend, we transfer out, is not £176 million, it is more like £533 million in EU funding, so that is the money that we are spending—we are passing into the rural community. The £86 million should be compared against that and not the net, because the £176 million that you are talking about is net of EU funding coming in, so it is a net figure. It would be very helpful if the committee could receive a breakdown of that. We can absolutely provide you with a bit more detail. I think that that would be helpful because I think that there is some confusion. Mr Rumbles is a perfectly reasonable question. We will do that. Maybe I could just make a slightly different point, which is that many EU states have negotiated top-ups to their rural development budget. Unfortunately, the UK Government did not try to negotiate such a top-up. Ireland negotiated a top-up, and its average per hectare P2 payment rate is almost six times that of Scotland. Looking at it from the point of view of seeking to maximise a budget convener, I think that it is most unfortunate that the UK did not take a different approach. Richard, your point is that you answered a question that Mr Rumbles had asked. Surely, the £89 million that we are paying out in staff costs is that the administration of the question that Mr Rumbles has asked is included in the administration of that. I really do not see the point that Mr Rumbles is getting at. We are paying out staff costs, and the staff are doing everything right across the board, including administrating the paying-out-of-cap payments. It is in the staff costs, surely? You are correct. If you look at table 12.02, the area operations costs are there. As David has described, the budget of £86 million will cover all the functions that we have. Some of that has nothing to do with the cap IT system, for example, covering the costs of sasa, for example, animal health and welfare policy development elsewhere in the portfolio. It is a holistic figure, as you described. I think that the point is that it would be very helpful for the committee to understand how much it costs to make the payments to the farmers under the payments that are listed in 12.02, pillar 1 and pillar 2 payments. That is what I think has been effectively asked for. That is a perfectly reasonable question. We will write to the committee with that. The point that Andrew Watson is making is that there is a large number of different divisions, not simply those dealing with the cap IT. There are lots of other functions to do with a whole range of rural activity and policy. In our reply, we will try to address that in the round to look at the various costs and respective functions, if that would be helpful to Mr Rumbles and the committee. Mr Lyle, I think that you have the next question. I will turn to Forestry. In October, the Scottish Government published the Economic Action Plan. It stated that we are committed to meeting our target for planting 10,000 hectares of woodland every year and increase that by a further 50 per cent by 2025. The budget for the woodland grants remains at 46 million. We only planted 7,100 hectares of woodland in Scotland in 2017-18, and the 10,000 target was never met. Confor state that, to meet the 10,000 target, the budget would need to be increased by 15 million, further 15 million. In your opinion, what is preventing the 10,000 hectare per year planting target from being met? I will bring in Joe O'Hara in a minute to answer the detail of the question. Confor recognised that, the sector recognised that, the NGOs also recognised that, both in the plantation of native species and commercial species, whereas we have not met the target for some years. We are working very hard to ensure that that will change in future. The one point that I would make—I alluded to this very briefly in my opening remarks, convener—is that, because the price of timber is at, I believe, an all-time high, the commercial receipts for its enterprise have been commensurately high. Obviously, that has allowed us to use that additional funding, as you would expect, and I think that it is prudent in order to invest for the future in replanting. However, if a more series of technical responses are required, perhaps Joe O'Hara could amplify that, because it is an extremely important topic that Mr Lyllis has raised, as always. The 7,100 that was achieved in 1718 was in the 1718 budget. That was the planting season, the last one. Last year's budget for grants is the same as the one that was projected for next year. In terms of the approvals for the current year, we have had applications for and approved over 10,000 hectares, and we have the budget cover to fund those. As you will be aware, the way that the forestry grants are structured is that there is a large payment in year 1, and there are subsequent payments annually after that. The figures that come forward for the total payment squashed up the subsequent year's payments and the upfront cost. In the current year and next year, we have enough to pay for the upfront cost, the year 1 cost, plus the historic payments, which are for a smaller area, for the subsequent year payments, which is why maths is a bit complicated in terms of saying that you cannot just say it costs £4,500 for a forestry scheme, therefore for 10,000 hectares you need £45 million, because there is a tail to that payment. The money that we have in this draft budget is the same as we had for the current year, and that is sufficient to pay for the 10,000 hectares target that we have committed to. We have enough applications that we have approved, for the current year, for 2018-19, and we have submitted almost 9,500 for next year. Those applications can move to the right, convener, so we are not complacent about meeting the target for this year. We are hopeful, but we are not complacent, and we are working very hard to do the achievement of the target this year. That is welcome news. As I said before, conforce continually tells us that we have to plan for tomorrow. We are still important wood, and as you say, the price has gone up through the roof, so will the budget for woodland grants increase over the coming years to meet the 25 target in Europe? I think that there will need to be a commensurate increase because, as Mr Lall knows, the target currently is 10,000, but it rises on a stepped basis to 15,000 by 225. Therefore, there will need to be an increase in budget. Obviously, we have been heavily reliant from the EU for our forestry funding, because the funding is made under Biller 2 of the CEP. The question remains what will replace the existing EU funding. The current position is that contracts entered into up to year end 2020 will be honoured, but beyond that there is no assurance. Therefore, when I met Michael Gove on Monday, one of the many things that I raised with him was a further assurance that the funding will be available. The reason that I did so is that Confor wrote to Mr Gove—I think that Mr Solman wrote to Mr Gove—pointing out that the average woodland scheme takes 18 months to take through the process, but also nurseries work on a three-yearly timescale that they need three years in advance to work out what their stock is going to be. Plainly, there are only a small number of nurseries in Scotland that need to plan ahead. They need to have investor confidence. I am afraid to say that there are some signs that, as Confor indicates, representing the commercial side and the growers, some signs that investment confidence is being impaired slightly by the lack of clarity beyond year end 2020. Therefore, Confor has asked for, at the very least, the same level of assurance for forestry as has been received for farming, namely up to the end of 2022. I asked Mr Gove if that could be done, but he appeared to say no. You want to ask a question, then I am going to come to Colin. I just wonder how flexible we can be if—we know that there is a big interest in planting more trees, and I am pleased to hear that you are going to hit the 10,000 at least this year. How flexible can we be if we want to go to the 15,000 hectares? Are we going to make sure that that does not happen before 2025, or is there enough flexibility that, if the beds came forward before 2025 to plant 15,000 hectares, are we content that we could fund that? I will answer them at a high level, and if Joe wants to come in with any detail, she can. Plainly, we have to budget for meeting the target. We do not plan to budget for meeting the target plus 50 per cent. We do not plan for that. There is funding sufficient for meeting the target, and that is the point that Joe Wahara made. There is not funding sufficient for meeting the target and exceeding it by 50 per cent. Plainly, there is a desire to do more in forestry, and Mr Chapman will know that. That desire, I am very pleased to say, is extending to an increasing number of farmers and crofters and small-air landowners. I am very keen to encourage that process and make it easier. I am very keen indeed. Therefore, we do want there to be more applications coming forward, but we need the budget line. I hope that we can work more in partnership with the UK Government to do that. Just one final thing. We have not promised that we will meet, for sure, the target this year. We are hopeful, but I would far rather under-promise and over-deliver than the converse. I think that we will go on to the next question, because I think that Joe Wahara was not as happy with that as nothing to add. I appreciate most of the impact in small rural communities and rural roads that come at the point of extraction rather than planting. What is likely to happen to the timber transport fund going forward? Obviously, there was an increase last year, but I cannot see a budget line for what that is likely to be. I will continue to see an increase in the timber transport fund, because that is obviously really important to communities impacted by the growth in forestry. The £5 million that has been paid by Transport Scotland, and we found efficiencies within that, and we perhaps can write to you with the detail of that, because it is not entirely straightforward. One of the decisions that I made early on at the outset was that because, convener, of the importance of being able to access our forests, we needed to do a bit more for enabling that, whether through provision in road, rail, bridges, sea. Of course, conversely, if we do not do that, then trees, once they reach maturation, can become wind-blown, and then their commercial value depletes either to zero or very much a lesser value, as well as the environmental degradation that can flow from that. It is a good investment to invest further in our timber transport fund. Thanks to professionals such as Alasdair Speedy and local committees throughout the country, Mr Smith, who look at local circumstances at a local level, we have invested that money pretty wisely. Again, we have a whole list of particular projects that have been enabled by the additional funding that has been put forward at my behest. I am very happy to produce that list for the committee. I would very much welcome, convener, just to conclude with this point the committee's support for seeing that we continue this funding. The areas that would benefit include, for example, Gail Ross's case nest in southern, where a very large number of forests are entrapped and where access to get the mature trees out is increasingly difficult, largely because of logistical transport reasons. Do we know what the figure is this year? Obviously, it did rise last year, and it was a very welcome rise. It went from £5 million to £7.5 million and was made available. Is that £7.5 million continuing, or is the base figure £5 million? The £5 million from the transport budget, which does not appear in this budget, will continue. That was new money, as Mr Ewing said, two years ago. Over the last two years, there has been an additional £10 million gone into timber transport. That is in addition to the money that is on our budget. What is going to happen this year? As Mr Ewing said, we have all the list of schemes. We are still maintaining that additional money, that was new money that came in two years ago. There is a small reduction on the contribution that is going from the Forestry Scotland line into timber transport. The net impact is still retaining a substantial uplift on where we were two years ago. To be clear, the grant specifically for the timber transport fund, that level will remain this year as it was last year. It is reducing by £800,000, but that is of a total of £7.5 million, not of the total of £2.5 million that is shown in the budget. Does that answer the question now? The simple point is that the timber transport fund, for what I understand in 2017-18, was £5 million that was available in grants, often match funded by local authorities. Last year, that level went up to £7.5 million. That is half the year before as well. That is not £7.5 million in 2019-20, in terms of the grants that would be made available for projects that local authorities would bid for. Will that £7.5 million be available for those grants this year? Under our current proposals, that will reduce by £800,000. It will reduce by £800,000. Cabinet Secretary, can I ask a question? Perhaps you could point me to it. I have struggled to find forestry sales in the forthcoming year. What are the predicted sales and will they match the predicted purchases? Has that been the case for the past five years? I am very happy to take that as a written answer. Just to clarify, do you mean sales of holdings of land as opposed to sales of timber? Correct. Sales of the actual asset. I am very happy to take that. I think that that is a perfectly fair question. We did discuss that during the course of the forestry bill. We will go back to the forest enterprise. I think that, primarily dealing with that, Joe Harra heads up the Forestry Commission Scotland. We will go to Trevor Rowan and ask him to provide a letter with that information for the committee. It would then just be a question, as a follow-up to that, where the money goes if there is a balance, i.e. if there is more receipt than there is expenditure, i.e. you get more from land sales than you do have to pay for land purchases where that money goes. That would be helpful as a written answer. We need to look at the round of activity, including the commercial income from sale of timber, which is a major and very successful forestry. Of course, we cannot ignore the fact that around 10 million per annum comes from renewable energy because of the success of the renewable energy policy. It has been a fairly successful story. The more successful it is, the easier it is for that money to be reinvested, both in plantings and purchases of new land for forestry. I take that point. The specific point that I am asking on is that sales of land, not on timber or income, are received from... One point just to make on that is obviously when you have an annual budget cycle, they do not always match up in any one year. That is why I did ask for it over five years, so I could see how it balanced because the Scottish Parliament decided some time ago that the policy would be that land could be sold from the forest estate, but it would have to be replaced. I just want to understand that, and I would like to understand whether that is going forward. Peter, yours is the next question. Thank you very much. I asked some questions about elfast money. At the beginning of last week, it was widely reported that the Cabinet Secretary had confirmed that the 2019 elfast money would be cut by 20 per cent, and then the following year the 2020 monies would be cut by 60 per cent. Three days later, during our debate in the chamber, it was confirmed by the cabinet secretary that there would only be cuts of 20 per cent in both years. I welcome that, very much welcome that. I wonder what changed in three days. Did the EU change the rules, or is this new money, a new scheme, or how has the cabinet secretary managed to achieve this change? I think that it is fair that the cabinet secretary answers the comments. You may disagree with what a fellow member of the committee says, and I am very happy for you to do that. However, when a question is being asked, I do not think that you should be answering for the cabinet secretary. That is an observation. I do not agree with the way that Mr Chapman has characterised it, although I think that I understand where he is coming from, and let me just talk through where we are. First of all, it is important to stress that this year, which is the 2018 elfast payment year, elfast has been maintained at 100 per cent. It was due to have been reduced to 80 per cent, but because of the late intervention by the European Parliament permitting that to remain at 100 per cent, we took the decision towards the end of the financial year to maintain it at 100 per cent. It is important to stress that, because there is a slight risk that people listening into this might think that their payments are going to be reduced this year. That is not the case. Mr Chapman understands that. It is useful to clarify that for the record. Secondly, the position in respect of next year is that, according to the EU cap rules, the maximum payment under the regime can be 80 per cent. The year following that, the proposal was that the payment must be reduced to 20 per cent. However, that was changed following intervention from the commission and council to 40 per cent. Indeed, that change was discussed at the December council in Brussels, which I attended. The reference to going down to a lower figure than 80 per cent is simply that the EU rules have changed. What has not changed is my approach to this, which is that we will continue to maintain 100 per cent this year. Next year, we have committed to maintaining it at 80 per cent. The year after that, we have committed to finding a workaround in order to maintain it at 80 per cent. In other words, it is not acceptable to me and this Government that there is a payment to farmers and trofters below 80 per cent. In fairness to myself, Mr Chapman, I have made that clear in the parliamentary chamber on two previous occasions prior to the debate last week. However, I can understand where some confusion may have crept in, and I hope that today has dispelled that. The last point that I make is this, convener, that I do not want to see the payment reduced to 80 per cent. I would like to see to find a means of avoiding that, if we possibly can. I think that it is reasonable to hope that the review, which is being undertaken by Lord Buw, is not really a convergence review any longer. As Michael Gove said on Monday, it is a UK inter-allocation review. I can explain that if asked, but I am hopeful that that review process will result in there being released additional funding, which will be sufficient for us to fund a workaround to maintain our fast payments if it is possible to do so at 100 per cent, both in 2019 and in 2020, if that is possible. We are working with stakeholders towards that objective. There was confusion. You just need to look at last week's Scottish farmer on the front page. It is quite categorically stated that you had stated that the Scots were coming down the line. I do not begin to apologise for that, but how confident are you that you can maintain the cut at 80 per cent in 2020 year? You are saying that it is a workaround. We are still going to be under the EU rules in 2020, as I understand it. Is this going to be allowed? How confident can our farmers be that you will be able to maintain a 20 per cent cut rather than a 60 per cent cut in the year 2020? We will work extremely hard towards that objective. I have described one route by which that could be done. I should also say for the sake of completeness, convener, that we have been working, and Kerstin Bedol has been involved in this work, along with other officials, with key stakeholders, including the NFUS, in order to find a workaround. There are at least two ways by which that could be done. One is the minimise payments up to, I think, €15,000, and, secondly, flexibility. Those are complex matters and there are technicalities involved, but it is my hope that sooner rather than later we can find a workaround. I should stress, and Ms Bedol would correct me if I did not, that one of the difficulties about finding a workaround is that the rules have not been established and set for the years 2020 and 2021. Therefore, in the absence of clear rules, a workaround of those rules is obviously logically not entirely possible, other than in outline or in theory. However, I am determined to provide continued health farmer support. It is absolutely essential. There is no doubt about that. It would only be with great reluctance and no other options that would be practical. We would be forced to see a reduction to 80 per cent. The Croftish Union has said that that is just about liveable. I prefer not to put that to the test if we can. I hope that the UK Government will accept its responsibilities for health farmers in the post-Brexit situation, if we are going to be in a post-Brexit situation. Maureen Watt, I think that you wanted to follow that up. Yes, two points. The equivalent in England of alfass was stopped in 2010. Do we know what the effects of that have been on health farmers so that we get an idea of what might happen in Scotland? Secondly, on convergence, it looks as if we have just to write off the fact that we were due £167 million, and it has not come. I understand that there has been another amount of convergence funding coming from Europe in the meantime. Is there any chance that we might get that? First of all, we have most certainly not written off Scotland's claim and the claim of Scotland's health farmers and crofters for the £160 million that was intended by the EU for those farmers who qualified financially and only Scotland's health farmers qualified financially. It is just a matter of incontrovertible fact. We have not and will not abandon writing off that claim in its £160 million. We have also said to Shure Ms Watt that if we are successful in recouping that money from the UK Treasury, which applied it for other means, then we would ensure that the farmers and crofters benefit from that. Secondly, the question was about the position in England. I can confirm that they ceased their alfass scheme in 2010. I am afraid that they have replaced it with England. I am afraid that I do not know that. I do not spend that much time studying the English system. I have enough from my plate to deal with the Scottish one, which I hope you understand. Certainly, we have decided here in Scotland, with devolved powers, that this is an important means of providing essential support for those who I think most need it. That is the key point. Finally, on the convergence point, Michael Gove agreed around the end of 2017 at a meeting with me. Subsequently, there would be a convergence review. That, of course, was promised by Owen Paterson back in 2014, I believe. Michael Gove and Monday described as a UK inter-allocation review because the Treasury intervened and changed the terms of reference unilaterally without consulting the Scottish Government or the other devolved administrations so that they are specifically excluded from the remit of the inquiry, looking at any adjustment of funding prior to now. In other words, they specifically ruled out any revisiting of what happened to £160 million. I think that that is completely wrong and indefensible, but because, as Ms Watt absolutely rightly says, there is the possibility that there is other convergence funding coming forward, I felt it prudent to allow the review to go ahead to look at that particular issue. However, I am afraid that Mr Gove has broken his promise, convener. He promised that there would be a convergence review. He now admits that this is not a convergence review. Therefore, it is absolutely right and proper that, as the Scottish farming minister, we do not let this drop, but we pursue matters in a pragmatic way, as well as a principled fashion. Peter, you want to ask a question, which will be the final one. Let us hope that we can contain the cuts to alfars to 20 per cent. Have you looked into what kind of serious effect even that 20 per cent cut might have to some of our most under pressure farmers in Scotland? Obviously, under the current rules, alfars claimants will, in most part, be entitled to single farm payments, so it is not the sole source of income. I am aware and praised of how important that is. This year, we are maintaining it at 100 per cent. I would like to try to see what we can do, convener, as I have described, to avoid going to 80 per cent if we can find a method of doing so. I do not want to raise expectations unduly highly, but that is my hope and intent. The real threat to alfars at the moment is the loss of EU markets for our lamb. I heard yesterday at a food resilience meeting that it is expected that the price of lamb will have in the event of a no deal with very limited opportunities for alfars, either to delay going to market or to find a better price elsewhere. The immediate threat is that there is no deal off the table now, using the powers that there is for that purpose. We can get back then to trying to work out sensible policies for supporting our whole farmers in Scotland. The last point being a purely political one. There are some questions that we have asked for answers for, which we are very much welcome as part of the budget scrutiny. I would like to thank you and your officials this morning for coming along and answering the questions, and the clerks will liaise with your office regarding the questions that we have asked for. I would like to ask committee members to take no more than a five-minute break, and I now suspend the meeting. I would like to move into session with panel two, and I would like to welcome the Cabinet Secretary and his officials, my maths and the Cabinet Secretary of Transport, Infrastructure and Connectivity. Francis Pasitia, if I got that right. Good. Thank you, director of aviation, maritime, freight and canals. Mike Baxter, the director for finance and corporate services, and Robbie McGee, the head of digital connectivity policy for the Scottish Government. Cabinet Secretary, I am delighted if you would like to make an opening statement of three minutes and no more. Thank you, convener, and I welcome the chance to give evidence on how my portfolio spend will contribute to our programme for government commitments. Our overarching aim is to promote sustainable and inclusive economic growth. We will do that by extending superfast broadband and 4G mobile coverage, investing in low-carbon transport and promoting active travel, enabling better journey times, connections, quality and reducing emissions, supporting economic development in cities and their regions, modernising Scotland's energy system, tackling fuel poverty and improving energy efficiency, and supporting low-carbon infrastructure transition. That reflects the £259 million, or 10 per cent, overall increase in the transport infrastructure and connectivity budget in the 2019-20 budget. Convener, I would like to highlight ferry services given the committee's pre-budget scrutiny over this area. We will continue to support ferry services on the Clyde in Hebride and Northern Isles routes, boosting those economies and sustainability of their communities. We will maintain the road equivalent tariff fares on the Clyde in Hebride ferry services and the reduced passenger and car fares on Shetland. We will continue to address the complaint against our proposal for RET or the Northern Isles route, and we will maintain local government funding support for inter-Island services. The significant increase in port and vessel capital in 2018-19 secured the ownership of three row packs vessels that served the Northern Isles. In 2019-20, we will continue to provide loan support to fund the construction of two dual fuel vessels at Ferguson's on the Clyde and invest it in our piers and harbors. 2019 will be a milestone year for digital connectivity in Scotland. Not only will it continue, we will continue to deploy digital infrastructure right across the country through the Digital Scotland Superfast Broadband programme. We will also award contracts for the Reaching 100 programme. We will continue to improve physical connectivity, journey times and connections. Maintaining our commitment to invest £80 million and encouraging a greater shift towards active travel by helping to create high quality walking and cycling infrastructure. We will continue to provide concessionary travel for older and disabled people and supporting bus services, the use of greener, less pollutant vehicles and smarter ticketing. There is also a significant uplift in capital investment for Scottish canals and Highlands and Islands airports. We will continue to make significant investment in Scotland's railways through the rolling programme of electrification, redevelopment of Glasgow Queen Street station and improvements to routes between Aberdeen, Inverness, Inverness and Perth. We are tackling overcrowding on Scotland's railways with 200 extra carriages to be added to the ScotRail fleet and the introduction of 26 refurbished high-speed trains to operate on intercity routes with 40 per cent more seats. The roll-out of a new sleeper rolling stock will also deliver a step change in overnight rail travel for passengers. The 2019-20 budget for transport infrastructure and connectivity supports the development of a more inclusive sustainable economy for Scotland. Very close cabinet secretary to testing my time and ability. I thank you for your opening statement. John, I think that yours is the first question. Thank you. Good morning, cabinet secretary. I would like to ask you about ferries, please. We grateful that the committee received a very detailed response from Mr Wheelhouse about our examination of the ferries. One of the points he makes is that the new vessels 801 and 802, and I quote here their introduction into service to provide additional capacity and resilience, is what he mentions. There is in the budget a £4 million resilience fund. Can you say what it will be used for and whether you consider it to be sufficient for the purpose of improving operations, please? The purpose of the resilience fund, the ferry resilience fund, is to provide a level resource to allow CalMac to be able to invest in key components that they know could have an impact on performance of their vessels. For example, where they have, with the age of the fleet areas of equipment that may require to be replaced, that they can undertake that work at an earlier stage, which reduces the risk of them having difficulties, whether it be mechanical or electronically, with the vessel that can have an impact on the ability for it to be in service. It is a resource over and above their normal maintenance budget that allows them to invest in some specific investments into vessels or to hold in stock equipment that they can use very quickly if it needs to be replaced to minimise the disruption that it may cause if there is a mechanical problem. The Northern Isles inter-island ferries also have ageing fleets with significant challenges. I presume that that can't be used for that, and if not, will you consider making funds available for the inter-island ferries in the north? We make funding available, and it is through the local government settlement, so there is just over £10 million that is provided to both between Orten Isles and Shetland Isles councils to maintain and continue to provide inter-island services. Those vessels are in the ownership of those respective councils. It would be for them to decide on how they want to use the money that we allocate through the local government settlement to whether it is for maintenance or other purposes on those particular vessels, so we do provide money to the councils for that purpose. I thought that you nodded when I said that two have an ageing fleet, some of which that fleet is not DDA compliant. Would you be interested in taking over that fleet and giving it some resilience? At this stage, what we have said to the councils is that we are prepared to look at the possibility of doing so, on the basis that there would be no financial detriment to the Scottish Government, and that there is a clear line of replacement around those vessels. That was an undertaking that was in the present ferry plan. As it stands, that work has not been taken forward to the level of detail that has been necessary for us to be able to do that. However, my general view is that having inter-island services managed and provided by those respective local authorities gives them a level of control over how those services are managed and provided within those local areas. However, we will continue to have discussions with them on that, but there are no plans in the immediate future for us to take over the inter-island ferries. Just very briefly, you therefore think that the situation with the western aisles, Cornuon and Elshard, they are not operating their fleet. Is that anomalous? No. For example, there are ferries that are operated by Highland Council, and ferries that are operated by Argyllwyn Bute Council, and a couple of particular routes. It is not just Orkney and Shetland that have fleets that should operate. Okay. If I may change tack, Cabinet Secretary, in front of us here with a table among our briefing papers, it is the level 2 spending plans. It is a table that lays out that there has been increase, albeit modest, in a number of the lines. The line that I am interested in is air services, where it appears to have gone up from £59.8 million to £67.7 million. I will move my sums away a minute ago, and that appears to me to be an increase of about 12 per cent, perhaps more. Why is there that increase? There is an increase in the allocation of the resource grant for Highlands and Islands airports. That reflects additional funding that relates to increase in pay, pensions and operational cost pressures. There is also an increase in capital investment, which is required for regulatory authorities to maintain their asset base. It supports additional capital investment into structures and facilities that they need to meet and ensure that they are providing to meet the regulatory requirements through the civil aviation authority and to allow them to make further investments in their own airports. That is a significant increase, is it not? It is. Will you be able to provide a breakdown to the committee of what that increase is expected to cover in more detail than you have in the airport? I am more than happy to do that. That would be something that would be submitted in writing to the committee, which would be very helpful. Jamie, do you want to come in on the issue of ferries? Thank you, convener. I appreciate that. Good morning to the panel and to the cabinet secretary. Can I just clarify—this is budget scrutiny, so I will try to stick to numbers as opposed to the politics around this. According to my papers, of your £2.6 billion transport budget, only £14 million is allocated towards new vessels. Is that an existing contract or for new vessels? Are you referring to vessels 801 and 802? If that is what that money is allocated to, yes. It will be, yes. Is it correct to say that in the forthcoming budget year there is no other investment in new vessels? Is that correct? As you will recall, when I was here in December, one of the things that I said what we are doing was taking a stock take on our existing procurement arrangements for vessels and also our existing fleet in order to review how that has all been taken forward, with a view to bringing forward a much more—what I would like to see—a much more comprehensive plan. They would look at the future plan for ferry investment and how we would then set out a timeline on how that would be taken forward. Part to give greater transparency around that, but also to help to assist the industry in knowing where the Government's procurement arrangements will actually be—that work has been undertaken just now. I would hope that that to be completed in the first half of this year, but that is why we are now taking that work forward on all to make sure that we have a clear line of sight around what that investment will look like in the years ahead. Okay, and that is very welcome. I think that a long-term strategy is something that the committee said would be helpful in terms of ferry procurement, but it is fair to say that there is no additional money in your budget for new vessels being allocated in the next financial year. That is just an observation that I am making. No additional vessels at present time. On the £14.2 million that is here, if you add that on top of the £59.18 from last year, I make that £73 million. Is that the estimated cost of HALS 801 or 802? If so, what is the total estimated cost of the build of the current vessels that are being commissioned? Does that include or exclude the already known overruns? If it does not include those overruns, has the Government built in any potential contingency for the cost if it is found to be liable for those overruns? Okay. I will ask a last might to respond to the specific detail in terms of the particular vessels. On the issue of is there a financing there to deal with any claim, you will recognise that it is only a claim. Any claim, if it was successful, would have to be considered at that particular point. What I am not going to do is having a budget, a provision for a claim on the basis that we are accepting that claim is correct. As you will be aware, Ferguson's has lodged a claim with CMAL, and that is being assessed by CMAL. We will be giving you consideration in the months ahead. It is a substantial amount of money. We are talking up to £30 million or £40 million plus. It is not an insignificant number, cabinet secretary. No, it is not an insignificant number, but I am not starting on the premise that we just accept that number from them in the first place. The cumulative provision for 801 and 802 is £97 million over a number of years, which reflects the contract value. Richard, do you want to come in? I am looking at the same level 2. Real services will have come in for quite a lot of criticism on real services over the last couple of months, but I see that the budget from 2018-19 to 2019-20 has come up to £181 million. In fact, near or off real services will have a budget next year of nearly £1 billion, a £11 million short of £1 billion. Is that basically to fund all the new items that the cabinet secretary detailed earlier? The increase, for example, is part to do with the delivery of the new sleepers. It is also part to pick up some of the capital costs that are associated with it. Some of the increase is also a reflection of the change in the way in which funding has been provided to the rail. I might explain that there have been some technical changes made in making it grant funding instead, which is reflected in the budget line. Overall, it reflects the fact that, as a Government, investment in our rail services continues to be a key priority for us. A significant investment has been taken forward over a number of years now, but that investment will continue in this budget as well as it stands at the present time. I might explain the technical change that has happened around rail funding, particularly on network rail. In the previous five years, the funding of network rail has been done through UK Treasury and debt funding, which is what is known as a regulated asset base. From 1 April 2019, the arrangements for funding of network rail changed across the UK, and that will be done by way of a direct grant from Scottish ministers to network rail. There have been negotiations with the HM Treasury over the last number of years around what that settlement should be for the five-year period commencing 1 April 2019. The budget that we have reflects the phase drawdown of that settlement in the first of those five years. There has been a change in the basis of funding, so it will be a cash grant effectively to network rail to support operations maintenance and renewals, as well as any enhancement projects that pertain. Those enhancement projects will be a combination of the flow-through from the current control period, so Queen Street has been mentioned, but planning for new developments to take place in control period six. We are giving money to network rail, but we do not control them. We seem to have gone on to railways, Richard. I am going to let John come in on railways, and then I am going to definitely go back to ferries, because there are quite a lot of questions on it. John, if you want to come in on railways— I am grateful, convener. It is on the very specific point, ladies and gentlemen. There was last year a dispute about the formula by which money came to Scotland from network rail. Are you able to advise whether that has been resolved? There was a shortcoming, a shortfall on the monies that we were due. I think that there is still a difference in this matter, and I will let Mike Baxter respond. Scottish ministers put forward their views on the basis of the allocation, which does not agree with what Treasury has allocated. The funding that we will receive is what Treasury has allocated, so that issue is still unresolved. You can confirm that it was a changed formula that was applied by the Treasury that sold Scotland's short on that. That is tied into what we believe has been a historical under-investment within Scottish real infrastructure, which we are now having to try to catch up with. Right, cabinet secretary. We are going back to ferries, because we have not finished there yet. I understand that there is a project to build a hydrogen-powered ferry that could potentially be used in Orkney. Can you give us any update on that? I am not quite sure how much money the Scottish Government is putting into that, or if it is other partners that are putting the money in. We have been supporting the High Seas programme through Transport Scotland and Scottish Enterprise. It is now being led by Ferguson Marine Engineering Ltd. It has also secured some £9 million from the European Union to help to develop what will be the development of a hydrogen-based drive train for a vessel. It is at the point where it expects to undertake some of its initial storyline work later this year, with the view to being ready for a vessel at some point late into 2020. My personal view is that it is a very ambitious timeline that it has for this particular project, but we have been supporting it through Transport Scotland and Scottish Enterprise to date. I am very encouraged and very enthusiastic about hydrogen as a potential fuel, so that is great. Does Ferguson have the capacity, including physical capacity, because we have visited their site and it is not huge? If they have still got the two current vessels, the dual fuel ones being built and the hydrogen one, is that really going to work? It depends on the vessel size, and that has not been finalised yet. It depends on the vessel size that is secured for the purpose of this particular project. For an inter-island ferry, it will be a smaller vessel, but it depends on the actual size and the complexity of that vessel as to their capacity to be able to deal with that. The two that they are building at the moment are still on time for what we were told was the timescale that was due to be launched this summer, or sorry, that was due to be ready this summer? Ferguson is still stating that that is a timeline that they are working to. We have got independent advisers monitoring progress on their work in this area, but that is a timeline that Ferguson is still saying that they can deliver those two ferries to 801 and 802 at the present time. Do you believe them? I think that it remains a challenging timeline for them to meet. Cabinet Secretary, I think that the next question is mine, although some of it has been answered. You will no doubt have, when you took over the portfolio, looked at the Scottish ferry services ferry plan 2013 to 2022, which would have based all your predictions on the future of procurement. If you turn to page 14, if you had it, you would see it says, we will replace vessels according to their life expiry and will base investment decisions on an analysis of whole life costs and benefits with the objective of covering as far as possible capital costs by savings in operating costs and increases in revenue. That is a truly ambitious target, which I would suggest is completely unachievable if it is costing £97 million for two ferries. I looked at three ferries, the Isle of Arran, Isle of Cumbrae and the Lord of the Isles, all over 30 years old, all with more than seven faults last year that took them out, some of them extremely expensive to repair. My question is, surely this ferries plan, which was the basis of the Government's future procurement, should have allowed for some replacement vehicles to already being purchased and identified for this year over and above 801 and 802 to replace some of those vessels that 801 and 802 will not do. What has happened to that investment? I think that it is more to recognise that there has been significant investment in both ferries and harbors over the past 10 plus years. However, meeting some of these capital costs associated with investment in matters such as ferries and harbors and ports is costly. We have had to try and manage that within very strict budget constraints, which has had a direct impact on a whole range of investment opportunities and choices. There is no doubt that the financial limitations that we have had with cuts in our budget in recent years have had a direct impact on some of those decisions and the ability to make some of that forward investment. What I want to do is—I want to make it clear, as I mentioned earlier, on a clear line of sight around our replacement programme, the deployment and replacement programme going forward and how that will look like in terms of new procurement arrangements. That is exactly why we are taking forward the review at this particular time in looking at both deployment and procurement. That will then tie into our investment plan going forward. That work that we take over the coming months will help to inform that future direction. I hope that it is not going to be based on the principle of basing the cost savings or what you can buy on the cost savings that you will achieve. If a ferry came along that met the requirements of what we need to service the islands, would you still buy it at the right price? At the right price? I think that if there was a one-off opportunity for us to procure a ferry that could serve the network, we would look at that very seriously. In fairness, it seems that we are actively looking at the present time as to any ferries that come onto the market that potentially could be brought into the fleet. If there was an opportunity, that is something that we would give due consideration to. My question to you is that when the new ferries plan comes out and to replace this one, which is only halfway through its life, will you commit to ensuring that the work that is identified in there will be financed in forthcoming budgets to deliver those aspirations in that ferry plan? It depends on future budget decisions, but the purpose behind carrying out this work is so that we have a clear line of sight and a clear plan around what those investments should look like to inform our decision making around those matters. The intention would be to try to achieve that in a more effective way than we have at the present moment, but that depends on future budget arrangements within Government overall. The next question is yours. Overall, you will have read our letter around our concerns over the fact, as the convener alluded to, that many of those vessels are reaching the end of their lifespan. Many island communities have been let down hugely over vessels going offline, technical issues, finding it difficult to replace parts, etc. I appreciate that you talked about your £4 million resilience fund, but that is not replacing vessels nor is it replacing some of those very old vessels. What reassurances can you give today to the committee, but also to the wider public that reliability and punctuality will improve, given that your budget has no new investment in new vessels? Well, let's look at it. We've got investment going into the 801 and 802 at the present time. You're referring to beyond that. What we are doing is, for example, that Islay ferries and X ferries will be looking to replace work around looking at both design and procurement of that has already started. It's not as though nothing is happening in that sense. Let me just pick up an issue about punctuality and reliability. The statistics from CalMac in their reportural reliability is around 97 per cent and punctuality is around 96 per cent. We would always want to see that in proof, but they are very impressive figures. I also recognise that when you are trying to get to an island, when a ferry is cancelled, for whatever reason, if it is weather-related or mechanical-related, that can be extremely inconvenient. It has a particular impact on those who live in our island communities because they are so dependent and reliant upon them. What we have had at times is that we have had some vessels in particular routes that may have had a greater number of reliability issues than that within the rest of the actual fleet, which is what the resilience fund is about trying to help to support, so that they can do forward planning on that, so that they can have some of the spares that, very often, if it goes, it is not held in stock. It is something that has to be manufactured, so it allows CalMac to look at particular items that they can get manufactured now, hold in stock, because they know that mechanically they will lose that, that could be quite a bit of time before they can get it. It is all about trying to help to support that type of issue and trying to help to reduce the inconvenience and the difficulties that are caused when mechanical difficulties occur. Reliability and punctuality figures from Caledonian McBrain are impressive, but we would always want to see them improving on that. The resilience fund is a specific fund to try to help to support them in making sure that they have to hand some of the mechanical things that they will require to help to improve reliability in particular. Punctuality is 0 per cent if the ferry does not run at all, and that is what many people are actually facing, and that is the problem here. If you look at the time scales of what could happen next, we have a budget year coming up where there is no investment in new ferries. I appreciate that there is a bigger piece of work. There is investment in new ferries, two new ferries right now. There is a small line in the budget to finish the cost of the ferries that have not been delivered. You cannot say that there is no investment in new ferries when there is investment in new ferries. There is £40 million out of nearly £3 billion. That is a significant amount of money for an existing contract, no new contracts. That is my point. The second point that I want to make is that even if your strategic review says that here is the plan, we are going to commission new ferries of the following sorts, knowing how long it takes to build ferries, knowing the difficulties and complexities that you come up against, especially when engaging in new technologies, as we have seen with the late delivery of the two new ferries that have not been delivered into the network and the problems that that causes. Realistically, how many years down the line is it before we will see new vessels and what happens to this ageing fleet in the meantime when there are more and more breakdowns and cancelled services? Can you understand people's perception that there is a looming problem for us if there are no new vessels being commissioned other than the two that are light, yet an ageing fleet that we have in these continuous problems? The two do not marry up. Why are not we making these decisions sooner? First of all, your point is that many people are experiencing a side idea of the experience of cancellations. I have just given you the figure that 97 per cent is the reliability figure within the network at the present time. Punctuality is at 96 per cent. What I accept is that, when there is a cancellation or ferries running late, it has an impact on people, which can be very significant. I am not saying that there are not challenges around punctuality and reliability, but I think that the facts of the statistics that are being provided by Caledonian McBrain demonstrate a very good level of reliability and punctuality. However, there is a risk with an ageing fleet that issues around reliability could become an increasing problem. For some of the vessels that have been the case, so in order to address that, we have created the resilience fund, which is there to help to support them in being able to make sure that anything that they have in terms of whether it be electronic technology that they need to upgrade in a position where they can actually do that, outwith their normal maintenance programme, and that they can hold to stock items that they may require, which, if they were failed, would be critical to the operation of the vessel, so that they can have it to hand to allow it to be repaired much more quickly to get the vessel back in use as quickly as possible. We have two new vessels that are in construction at present time. We are looking at the replacement of the eylaferry, so some of the design and works that will be necessary for that to go to procurement are already being taken forward. We are looking at, as I have already mentioned, the whole procurement approach that we have alongside the replacement programme that will require for vessels and also for harbors and ports, which are critical as well, which we will take forward. If your view is that the level of allocation of funding within the budget for ferries is insufficient, I am interested in hearing what the committee's views are on which other part of the budget should be cut in order to allocate it to ferries. I can hear people saying to me that they want to see an increase in a particular budget line, but they also have the responsibility to identify where they want that money to come from. Cabinet Secretary, I think that it is an interesting point, but that is asking this committee to do the work of every other committee in the Parliament as far as budget scrutiny is concerned. I think that that is a bit of a difficult question to ask. Jamie, if you have got your answer, I would like to move on to Peter Chapman's answer. We know that there has been huge pressures on the ferries, particularly during the summer with increased tourism. That is fine, but it has meant that sometimes locals have been unable to get a ticket to get off island at short notice. There has been some talk about consideration of demand management measures to help alleviate pressure at peak times. Does that mean that this might mean higher fares at peak times, or is that not your thinking? What is your thinking to try to manage this huge pressure at peak times? It was an option that is set out in the ferry plan to look at the possibility of trying to manage demand, particularly in routes that have RAT in place and the demand that is increased in these particular routes. We have said that that allows us to look at a number of different options. For example, it could be the option of higher fares at peak times, or it could be the option of incentives at peak times, where there is capacity on the actual ferry. Is there a way in which we can try to shift some of that demand to utilise the resource much more effectively? There is a variety of different things that we can look at to try to help to deal with the additional demand. One of the things that is particularly important here is that it is not something that may be necessary in every route. It may be just in some specific routes at specific times that there is a need for some sort of demand management arrangements to be put in place. Anything around that will be looked at on that basis, but in doing that, I am also very clear about the need to make sure that we engage with a local community, both at an individual level and also for local businesses, around any demand management arrangements that are put in place. If we are looking at doing that in any particular routes, there will be engagement in the local community around that. Any demand management arrangements that are put in place will be put in place with agreement of the local community and what we are trying to achieve through that. There are a variety of different options that we can look at, but it will be a process that will be through engagement with local communities and how we can make sure that we are utilising the resources as best we can. I welcome what you have just said, but does that mean that there will be some schemes in place this summer, for instance, because it is a summertime issue? I am not sure whether, in evidence, if it is in the letter or not, one of the things that we are taking forward is an action plan around looking at things. For example, we know that there are specific issues for those who live in our islands and have been able to get off the islands for medical appointments or funerals, et cetera. One of the things that Paul Wheelhouse has been taking forward with officials is looking at putting in place some form of arrangement that tries to help to address some of those types of issues through the form of an action plan. We would like to see that in place, if possible, for this season. It is a challenging timeframe for us, but it is possible in some of the work that has been taken forward to try to help to achieve that. Alice Francis might want to say a bit more about that and the work that we are taking forward. The action plan is intended to recognise that there are long-term replacement issues. The action plan is intended to look at short-term customer experience and what we can do to ameliorate the impact of delays when those do, unfortunately, arise or they are unavoidable. Part of that will be about how we can encourage operators to more effectively communicate delays, to more effectively communicate contingency arrangements and to better articulate what steps they have undertaken in deciding what those contingency measures should be. That is some practical things about what information they have on their website, about looking at alternative vessel deployment, looking at exploring additional sailings and where there are impediments to those preferred options explaining to passengers why they cannot be delivered in particular circumstances that prevail. The second thing that it looks at is more practical measures. What can operators or passengers do to mitigate the impact? Who is responsible, for example, for providing alternative accommodation or alternative routes and just practical help in that manner? Part of that will include looking at demand measures or demand management responses. It will be challenging to answer the specific question to have that conversation because we need to do that in consultation with communities, with all communities by this summer. It is certainly one of the key priorities that we have coming into the new season to finalise that and to make sure that it is well articulated. People are aware of it and that it makes the demand that has been put to us. I do not know of having any friends at all in the noon. Carmac has a great reputation for providing lifeline services, but on the Gwyrwch Dunun crossing, 85 per cent plus of the traffic chooses to go on a commercial operator that runs a very successful service. Why have we got a second service that we are subsidising and which the Audit Scotland tells us will require substantial investment in new vessels? You will be aware of the recent decision that we made on deciding that the Gwyrwch Dunun ferry service that has moved into the Clyde and Hebrideen service will be a passenger-only service going forward, largely because if you look at the potential usage of that route for vehicle use, the market space is very small and it is just not sustainable as a service. Paul Wheelhouse and I came to review that we should make a decision that gives us clarity on how we can take that particular service forward. We still see it as an important service to the community that stays in Dunun and being able to access Gwrokin on to the rest of the central belt, and we want to maintain that service going forward. What will happen is that the existing vessel will continue to operate on that particular route. What we will now be able to do, having made this decision, is that we will now be able to consider what any future vessel for that particular route might look like in the replacement programme going forward. I will also allow Seymal, who owns the Gwyrwch port harbour, to decide on what investment programme they take forward for investment. It is important to provide that additional link for communities in the Dunun area, but, in deciding to make it a passenger-only service going forward, it allows us now to get clarity around investment in both vessel and also in the harbour infrastructure. In terms of the numbers that I have got in front of me for potential new vessels to support that, which are very substantial indeed. I seem to recall that 10 years ago, the subsidy that was being given to carry passengers on what is now a CalMac route exceeded the fare that the commercial operator was charging. It never seemed to make any sense to have, essentially, two crossings on the same stretch of water, especially as the sea crossing that CalMac operates is 50% longer in steaming terms than the one that the commercial operator runs. I will ask the French to comment on the history of it as a particular crossing. My view in terms of resilience for that particular community in providing them with the additional crossing that we have from Gwyrwch to Dunun, I think, is important, and we want to maintain that and continue with that going forward. There are many routes that we have caught that present financial challenges and sustainability. That is not the only route where there are financial challenges and sustainability, but, given their importance to those local communities, particularly for those where it may be the only lifeline that they have, we have to maintain them and continue with them. Having an additional passenger service continues to be important. We have now got clarity on how that will operate going forward in the future, and we can now make the decisions that allow us to improve that service, both in terms of ferry and in terms of harbour infrastructure, and where it will look like going forward. Just in the interests of managing the way forward, looking too far back into history might not allow us to get through all the questions of the present. If there was a very short answer—a 30-second potted history, if not, there are still further questions on this thing that I would like to look at so we can move on. I think that there is a long history to this, so I do not think that it will be a short answer. However, if the member would like further information on it, I would be more than happy to respond to him in writing on that matter. Okay. I think that that would be helpful in writing, cabinet secretary. There is a series of questions here. Jamie Greene, followed by Colin, followed by John Finnie. Thank you, convener. Local ferry users on both sides of the Clyde were understandably dismayed that there was a tender that was then paused, then the tender was back on and now it has been cancelled altogether. Can you just advise why you have decided to direct award that contract on the basis of which legal advice that you do not have to go to tender for it? Given that you have direct awarded it to an operator, can you put a timescale for the benefit of users of that service, bearing in mind that it is one of the lesser resilient services if a new vessel will be put in place and if so, when? Just as I have mentioned, now we have got clarity and it will be a passenger only service that allows us now to consider what any replacement vessel could look like, what that would be, so that it will be part of our plan going forward, our procurement and deployment plan going forward, and also an investment into the harbour, Gwroch in particular, can now be considered by CMAL as part of their investment programme, which they are already doing in looking at what that should look like. I will get Francis to say a bit more about the decision around the matter. As you will be aware, this was a standalone contract outwith the Clyde and Hebedean service and our view was that continuing to have it as a passenger only service outwith that particular contract did not make any logical sense. It was better to actually draw into the overall Clyde and Hebedean contract, and that is the approach that we have taken in the past, Francis, to say a bit more, but clearly legal advice was taken on our ability to do that. I am sorry to keep interrupting, I apologise, but there are a lot of questions specifically on budget things, so I am very happy with that legal advice and that wants to be given in writing to the committee, if the committee member is happy to do that, so we can move on to the questions relating particularly to the budget scrutiny. I am happy to do that, if Mr Gean is happy with that. I am going to take John Finnie, because it is on this subject, then I am going to go to Colin and then Mike Rumbles. I will say it and then you will give me a round, convener. Cabinet Secretary, I applaud the approach that you have taken. It recognises that transport is not always about motor vehicles, and although the other service does provide a passenger service, the link directly into the town is complemented by the fact that when people come off on the south side, they can go directly into a train and connect elsewhere. Is that a factor? It is a factor, and one of the things that we have also given our commitment to do is to look at Wales away in which we could help to improve connectivity from the harbour. For example, we are looking at the possibility of a car club arrangement with electric vehicles that might help to support people. No, but just to help to support people who may be coming off, there are no cars there, but in particular, given that they are electric vehicles, I am sure that the member would welcome that. Eitlie Dunn, Mr Finnie, and Colin, yours is the next question. That is convenient. I am pleased to know that it is not a question on ferries. It is a very brief question on bus services and a change in the budget around that. Last year, the budget included £10 million of financial transaction loan facilities for the bus industry, which ultimately was not drawn down. This year, that has been replaced by £3 million in direct capital funding, which means the overall budget line for the level of support for bus services falls from £64.2 million to £57.2 million. Can you explain why the £10 million loan facilities were not used last year? What were the reasons behind that? Obviously, it is a service, a facility that was provided, but ultimately not drawn down and not used for the benefit of improving bus services. We are looking at it being utilised by the industry as a loan fund for them to be able to use for the purchase of buses. In the end, the industry chose not to use it. Largely, I understand on the basis that they could get as good a deal within the commercial market as they could from this particular arrangement. You will also be aware that our access to financial transaction arrangements like this varies from year to year, depending on the treasury and the arrangements around those issues. However, it was larger that the industry did not feel as though it offered them anything over and above what they could access through the commercial markets. Questions on Prestwick airport. I am aware that another loan has gone to Prestwick airport. I was wondering whether, in the future budget, you have any more plans to make any more loans to Prestwick airport? Can you tell us how much money Prestwick airport owes the Scottish Government? Does he think that he will give me an indication of what year we will ever get our money back? Within this financial year's budget, we have allocated just over £7 million of loans that Prestwick airport can draw down upon, which are on a commercial basis and on commercial terms. As it stands at the present moment, it is at about £46 million that they have drawn down on loans to date. That gives them an additional £7 million. You will be aware that they have recently published their accounts just before Christmas, which demonstrates that costs are down, revenues up. That continues to be the pattern in this financial year as well, as their revenues are increasing as well. As a consequence, the draw-down that they made in the last financial year was certainly down in what it had been the previous years as well. Our investment in making those loans available to Prestwick airport is a recognition of the importance that that strategic asset has, not just to the local economy but also to our national economy, given the very significant industries that are associated with Prestwick and the aerospace industry. In our view, it is important that we continue to maintain those industries in that particular area, given their important link to the airport. Does that mean that you do not expect them to pay their money back? Those are commercial loans, so they have to be repaid on that basis as well. By when? I cannot give you a time frame on that, as it stands, because Prestwick airport is operating in a very challenging market, particularly when it comes to passenger air services. You saw that in terms of Glasgow and Edinburgh airport, the challenges that are there. You can see that with the situation that we have with flybies that it stands at the present moment within the aviation industry. There is a very challenging market that is operating in. What they do have is a range of very specialist skills at Prestwick airport, which is over and above what other airports are able to provide, particularly around freight, a very specialist nature of freight as well, which is looking to expand and develop. In increasing their income, that has been a key part for them in moving more and more into that space. The challenge with that particular sector is that it comes in bits and bobs. It does not all come in a standard line that you know in the next few years that you will always have x amount coming in. It goes up and down, so you have to pursue individual contracts. It is a challenging environment for them, but we should not underestimate the importance that Prestwick has to the wider economy and particularly the businesses that are associated with the airport. That is my precise point, because if you look at the profitability of the company, they are not profitable. Of the last 10 years—correct me if I am wrong—it is like one year that they have been profitable, they are not profitable at the moment, they have no chance of becoming profitable from what I can see from the books. I get from your response that you are indicating how much more important it is for the larger, wider economy, and I am not disputing that with you, but what I am trying to get at is looking at it from a financial point of view and from a budgetary point of view. If that is a higher consideration than your consideration of paying the taxpayers' money back, do we have any prospect of getting that taxpayers' money back? I am asking if that is a political decision. Are you making a political decision that is far more important for general health, if I can put it that way, rather than focusing on getting the money that we have invested in the back? We would like to see the airport at some point being back in private ownership. That is dependent on the market and the interest in the airport itself. In the meantime—as you are aware, it is operating at arm's length to Government on a commercial basis—they have been reducing their cost base and also increasing their revenue in order to reduce the amount of money that they require from Government through the loans that they have at the present time. What happens in the future is dependent on where there is commercial interest in taking over the airport and the scope for the existing management team to draw in additional revenue into press week. That is something that they are very actively looking at and considering. The wider point that I am making is that, for us to simply walk away from press week, we would have a devastating impact on the regional economy and the businesses that are closely associated with the press week airport in the aviation industry. As a Government, we are not prepared just to walk away from that. We need to find a long-term solution and we are continuing to try to do that. In the meantime, the management team are doing what they can to reduce their cost base and to increase their revenues. They will continue to do that from the discussion that I have had with them. Richard Llywydd, I am going to take Richard's question. Basically, I have described press week as the jewel in the crown. At the end of the day, it does not matter how much loans we are giving them. It is a substantial asset that is a major employer in the Ayrshire area. I have no concerns about how much money you are giving every year. Quite honestly, I think that it will be years before they will be able to do it. Would you agree with me that it is a substantial asset that is basically a jewel in the crown? I agree. It is a very important national asset and it is extremely important to the regional and national economy. We should not underestimate that. Can I just ask a question based on the fact that you said that there are commercial loans to press week apple? On my understanding, you said that they have had £42 million already. They have got the ability to draw down another £7 million or £49 million. You will have had a valuation of the asset carried out last year in preparation for the accounts. I understand the importance absolutely of the airport to the local economy, but on an open market valuation of the airport, could you confirm to me in order to secure those commercial loans that it is valued at more than £49 million in fixed and tangible assets? I will ask a maker Francis to respond to that in more detail for you. I do not have the figures to hand, but I am more than happy to clarify that. I look forward to receiving the valuation as prepared, which you will have had done for the accounts. Thank you for that offer. The next question is from Maureen Watt. Can we move on to digital connectivity? My understanding is that the digital Scotland's superpass broadband programme should probably have finished by now, but due to the success of the uptake and the reinvestment of the moneys, it is continuing its roll-out. Do you have an idea of when that might be completed or are you going to let it roll on? The DSSP programme has been a very successful programme. The Audit Scotland report demonstrated that. It has had a reach beyond what its targets were. Part of the benefit of that is that we have a gain share in the programme, which will allow us to provide broadband connectivity to some 23,000 additional premises over and above what was initially set. That has been taken forward this year, so it does not appear on this budget line because it is already being provided for. That will be taken forward in the course of 2019. Obviously, we are out to procurement just now. It stands at the present time for the R100 programme, which will be the next programme after the DSSP programme. Do you see an end date for the superpass programme then or not? Do you mean the DSSP programme? It should be completed this year? I think that we anticipate that by the end of this year, that will be the end of activity in the ground, certainly by the end of the financial year, and then it is into the managed closure of the programme, which will take a period. However, in terms of deployment on the ground, certainly by the end of this financial year, but most probably by the end of the calendar year. I think that there is much more that can be done on that. I have spoken to colleagues and they see the open reach fans in their area, but what is on the website does not match what is happening in terms of connectivity on the ground. I think that the website is behind what is actually happening, so there is probably more that can be done on that. That is just an aside. Can you tell me what discussions the Scottish Government has had with the UK Government to ensure a fair share of the £200 million that is available for the network, for connectivity network? We have had engagement with the UK Government on this matter. The challenge with this is that we were not consulted on at the time when the UK Government announced it. It has designed this programme in a way that is not particularly helpful for rural Scotland, around the idea of using public infrastructure as hubs, which in more rural communities does not work. Had they engaged with it at an earlier stage, we could have fed that in, which would have helped the programme to have been designed better to reflect the needs of rural Scotland. However, notwithstanding that, we are working with them, but we have not got to the point where we have finalised an amount that will be allocated to Scotland through this £200 million programme. There is a need for us to get to that particular point, so we have clarity on that. I would certainly welcome any support from the committee in getting the UK Government to give clarity on that, but, as it stands at the present time, I cannot give you a figure because it has not been finalised. Part of that is because of the design of the programme that does not really fit with rural Scotland. I take it separate from the contribution that we would expect from the UK Government on the R100 project. Do we know how much money we can expect from the UK Government for the R100 project? The R100 programme is a £600 million programme that we are taking forward. The contribution from the UK Government to the R100 programme is £20.99 million, so it is about 3 per cent of the overall budget. Despite them being responsible for connectivity and broadband. That is a wholly reserved matter to the UK Government. The reason that we have stepped into that is because of the lack of strategy to provide the right type of digital connectivity in Scotland. We are using Scottish Government money on an area that is wholly reserved to the UK Government. It is disappointing that it is only allocating just around £21 million to the new R100 programme. Can we expect any more from the UK Government then? We will certainly continue to press for them to make a greater contribution to it. I would certainly welcome the support of the committee in pursuing the UK Government on that matter, because it feels wholly unacceptable that, in such an ambitious programme that we have here, we have had to step in because of the lack of progress that has been made to provide the right type of digital connectivity that the UK Government is making such a very literal, pathetic level of investment in digital infrastructure in Scotland. Thank you, cabinet secretary. I have a few questions for you. As I understand it, the next phase of R100 will be awarded in three geographical lots. That was to take part in February, I think, which has now been delayed till the summer. Can you just confirm to me which parts or how much of that £28.2 million that is allocated in the budget will be allocated to each of the geographical lots? What are those geographical lots? The three lots are north, central and south. The overall R100 programme should be provided with digital broadband connectivity to an excess of 170,000 premises. The largest chunk of that is in the north, and the second largest is in the south, and the smallest amount is in the central element of that. The procurement programme is broken into those three lots for the industry. If it would be helpful to give you the figures for each of those three lots, that would be useful. For example, in the northern lot, it is in the region of about 90,000 premises. In the central lot, it is around 54,000. In the southern lot, it is 27,000. You might be wondering why the budget allocation to the central lot is lower than that of the southern lot. It is large because of the engineering that is required in those rural areas, which is much more costly. Did you give us a budget allocation? I am going to give you the budget allocation next. The budget allocation is within the £600 million budget. For the northern lot, it is £384 million. For the central lot, it is £83 million. For the southern lot, it is £133 million. The budget provision for that, as it stands at the present moment, because we are still in the procurement phase, will be largely fallen to the next financial year, because payment is made on a retrospective basis. It will be the 2020-21 budget where that works to start to become a part. What you are saying is that, if I have that right, you are going to have to find the region of about £530 million over the next two years. Is that right to deliver it by 2021, or is the aim not to deliver it by 2021, as you have stated? The aim is still to try and deliver it in 2021, in part. Pry or to? To. However, I am also conscious that, when you are undertaking programmes that are challenging, particularly in very remote areas, issues arise from that. That is certainly what the target is for us at the present time. The dialogue that we are having with the industry is about what some of those challenges could look like, and how they would manage some of those challenges within that particular timeframe. Do you believe that the lots that you have split up north, central and south will all be actioned at the same time, or will they be phased? No, they should all be to procurement at the same time. So they will all be awarded at the same time? They will all be awarded at the same time, yes. They will be. There could be different companies that have different lots, but there are, or it could be one company that gets all three lots. The reason that was broken into those lots was to make sure that there was greater competition, which would demonstrate that, given the competition that we have got for it, it appears to have worked. So I have heard the right word, try and aim, confidence that you are going to deliver it by 2021? I am confident on the basis that, from what we are hearing from the industry, that is possible, but I am also minded of the technological and some of the engineering challenges that we are facing around us, but that is certainly still the target. Sounds fairly caveated. Can you just confirm when are the contracts being awarded? It was February, wasn't it? We are now being talked about early summer. I always get confused. Summer is a huge length of period. It is, in my part of Scotland, the sun always shines. Could you define when you think that the contracts will be awarded? Let me just put it in context. Some of the issues around time have been, as a result of the competitive dialogue that has been taken place with the bidders, who have asked for additional time to work through some of the issues. I am conscious that the more time we give them, the more reasonable time we give them, the greater certainty and assurance that we can have around their ability to deliver some of the programme. I am content to allow them to have that additional time to carry out some of the extra work and information that they require to come to make decisions. In terms of the summer, I would expect us to be in a position by our summer recess, if you like, to be in a position where we will have the contracts agreed to. I guess that summer in the Highlands starts earlier than our recess. Peter, you wanted to ask a question. That was just to follow up a wee bit more. Is not it the case, Government Secretary, that we are behind in this project, that we should have been further on than we are now? My concern is that we are not going to reach our 100 completion by the end of 2021, as the convener has already pushed you on. I feel that we are slipping behind and we will not achieve that target. Can I tell you what is the case? We are having to pick up on something that the UK Government should be doing, and its failure to do has resulted in us having to step into this space to do it. We are trying to do it, as you can see through the DSSB programme and the Audit Scotland report of that, and the fact that we have closed down the gap with the rest of the UK very significantly. However, the reality is that when I have been asked about extra funding for things like ferries or I have been asked for other aspects of investment into transport is that a sizable amount of Scottish Government money is having to cover something that the UK Government has not been taking forward, and that is exactly what the DSSB programme has had to do, and that is exactly what we are having to do with our 100 programme. The reality is that, even with the challenges around the timeframe, this should have all been dealt with at a much more effective strategic level by the UK Government, and its failure to do so has resulted in us having to step in to fill in its failure in this matter. The final question, therefore, is to Jamie Greene. I would like to keep this as a pragmatic question. Given that there is a UK-wide USO that comes with its own associated contracts and tenders, how will the R100 contracts that you award, which will have different parameters, sit alongside the roll-out or delivery of the USO? I just want to see if there is any overlap, any duplication of work or, indeed, if it is being separated out, and that is more just from a pragmatic point of view. I will ask Robbie to cover the technical aspect of that. Certainly, right from the start, we have done engagement with the off-call, and I think that the intention behind that has been, as far as we can, to try and marry up the two processes, certainly in terms of, as a bare minimum, sharing as much information as we can as it becomes available around the reach of the R100 procurement. In particular, there is a real opportunity for us to work together to try and tie together the delivery of the USO conceivably with the delivery of any aligned interventions that we might need to make to reach premises that will not be reached by the main procurement. There has got to be an opportunity there where the two initiatives potentially focus on the same set of premises to work together. We have already had some really good discussions with off-com to look at the practicalities of how that can be managed. Now that there is a bit more certainty around the universal service provider, so we are continuing those conversations with off-com and we are hopeful that we will get a successful conclusion to them. Given that you already have contracts in place, or that you have put out a tender for contracts, I dare say that the wording of those contracts will already have been given some substantial thought. As you say, will you have a situation where you have two competing companies working on the same premise, one delivering, one speed and one trying to deliver another? It does not make a huge amount of sense, so can you just give more detail as to how that will be joined up? What we have agreed to do is that as soon as we have contracts in place that will obviously be at premise level, that will give us a clear sense that we will share with off-com around which premises we will get the minimum 30 megabits per second. That, at stroke, will roll them ineligible for the universal service obligation. As I say, from our point of view, that information-sharing could conceivably be most fruitful when we have the premises that may not be covered by the initial procurement, and that is the opportunity for some joint work, which, again, as I just went back to my earlier point, could conceivably marry up a kind of USO approach with our aligned interventions, but, as I said, the practicalities of that are being worked through. We have already given the undertaking to off-com that will be done on an open-book basis as soon as the contracts are signed, but we will share that kind of forward view on coverage, which will obviously influence the delivery of the USO and its scope. Thank you very much, and cabinet secretary, thank you and your team for attending this session, which has extended a wee bit. On the fact that it has, I would ask if you could quietly leave while we continue our meeting because we have other matters to discuss. Therefore, for the committee, I would like to move on to a gender item 3, which is European withdrawal-like notifications. There are, in fact, two notifications, one on agriculture and one on... Sorry. Just while the officials and cabinet secretary are leaving, as well as us asking him to do some things and get back to us on things, he did ask us if he would write to the UK Government in relation to the R100 programme, in relation to the derisory 20.90 or 993 per cent to the R100 programme. Could the committee please undertake to write to the UK Government to ask them why, given that they are responsible for digital connectivity, the amount that they are contributing is so low? I am not actually sure that that is the job of the committee to lobby people out with the Scottish Parliament. I think that it is a matter that we need to discuss as a committee. Well, I am happy to discuss it now if it is necessary to put it to a vote. It is not for the Scottish Government to instruct the committee what the committee needs to do. No, I am not saying that you are instructed, but I said ask. I am not inclined to take instructions from the Government ministers to what the committee needs to do. Hold on, hold on, hold on. This is exactly why. If we are going to do this and we are going to discuss this now, could I ask people just to do it reasonably and to make their points and not to talk over other people? I find it extremely difficult to hear three conversations at once, and for that I apologise, but John Finnie. Thank you, convener. Mr Humble is entirely right to say that it is not for us to take direction, particularly in the circumstances where we are taking evidence like this. Nonetheless, we are scrutinising a budget and we have heard a very, to my mind, compelling case about a deficiency in an area that is indeed a reserved area. I have to say that it is a source of great frustration to me that the significant sums of money that could be buying ferries, that could be building schools, whatever, are being used to this. I think that it is entirely reasonable to ask the UK Government for an update on that position, particularly in relation to the overlap of some of those schemes. Richard? We have heard this morning that £600 million will be spent on that and the miserly money that has been given by the UK Government continually is the UK Government who is responsible for digital connectivity in Scotland, not the Scottish Parliament. We, as a committee, should be asking the UK—I am sure that the UK committee sometimes asks us things—that we should be asking why it is so miserly the amount of money that has been given to the Scottish Parliament in order to fulfil a UK responsibility. Thank you, convener. I normally think that we generally reflect on evidence and discuss it in private, but, if we are having it in public sessions, so be it. The decision of the Scottish Government to implement an R100 project in its entirety, within its rights to do so, is indeed a political decision. There is already a UK-wide universal service obligation. Now you could argue that the parameters of that are unacceptable to the Scottish Government, and again they have made their views clear on that. However, part of the budget scrutiny is relative to the R100 project and does not include the money that will be spent on an existing UK-wide universal service obligation, which is an additional set of money that will be rolled out across the UK. If you are looking at it in the context of the budget, I do not think that the two matters are related. I do not think that the committee should be writing to anyone on the wishes of a minister. It is up for the committee to choose to do so, and I think that conflating the two issues is entirely unhelpful, and I would recommend that we do not, as part of our budget scrutiny, write on this matter. Mike. We are discussing this now when we do not normally do it this way. Our job, remember, is to scrutinise the Scottish budget. That is what we are here to do and that is what the agenda item issue is. I would rather be concentrating on what our job is and not on what is something else. I think that I would be totally wrong at this moment to proceed, as I have suggested. Will I suggest that we get back to the agenda, please? Just a few. There is plenty of precedent for us to communicate with the UK Government. Remember that we had Michael Gove in front of us as a committee. I think that good cross Government working is something that we would all wish to see. That is just a general point. Second point. The USO is not any money at all from Government. It is an obligation on network providers. It is a universal service obligation that applies to them. It is about them spending their money. It is not about Government money at all. I think that it is proper that we inquire in relation to an allocation of money that is in the Scottish Government's budget proposals why they are having to spend their money. Our question to the UK Government is a very simple one. It is almost a one-centred question. We would just ask them to provide the justification for the current proposed allocation to the programme, because that is interacting with the Scottish budget. That is the context in which we do it. I understand that we are bouncing on the, as Mr Rumbles has properly said, on the edges of this, but it is a matter that affects the Scottish budget. That is the basis in which I would suggest that we do this. I am anxious to make progress on other agenda items, but, like you, convener, I think that I am anxious to make progress on other agenda items. I am also very disappointed at going down that route. I do not think that this is a job about this committee at all. My understanding is that the UK Government has already spent much more per head of population in Scotland than it has in England and Wales on digital connectivity, and I would rest my case there. Maureen Watt, you might listen to what I think may be a way forward. I think that it is very difficult, and the committee always takes a position to leave politics at the door and to make sure that we consider matters as they are. I therefore think that it would be entirely appropriate for the committee to write to the UK Government to ask why they have contributed that level and the justification for that. Once we have that, it would be entirely right for the committee then to consider that and to discuss whether they want to take any action at that. However, to charge in at this stage as a committee and make comments on information that we have heard, we need to have both sides of the story before we go forward. Can I make a suggestion to the committee that we should write to the UK Government asking them why they have contributed that level and what reasons they made for doing that and then come back to it at a later stage as a committee? We will now move on to or revert to agenda item 3, which is consideration of two SIs to do one with to do with agriculture and one to do with food and drink. We have received these two consent notifications into two UKSIs as detail on the agenda. As I said, agriculture, food and drink, veterinary medicines and residues, all the instruments are being laid in the UK Parliament in relation to the European Union withdrawal act. Both SIs are categorised as category B to the extent that the transition from an EU to a UK framework would be a major and significant development. Can I ask for any comments? Richard, I think that you just beat Stuart, but I'll cut to you first and then Stuart. Well, the one thing I'd like to know and maybe no one can answer this is that, although we all likely agree to these, what happens if Brexit doesn't take place at the time and it's kicked down the road for a number of months? Do these stay past or do we have to revisit them? It's a logical question. I don't think that we can set this point, and it's somewhat hypothetical. Just to put it on the record, convener, I think that we would wish to be kept updated with the Scottish Government in relation to the regulatory powers transferred by the agriculture transfers functions, EU regulations 2019, just a simple matter. Therefore, are we agreed that we write to the Scottish Government to confirm we are content for consent to the UK SIs referred to them and note a request for a response from the Scottish Government on the wider policy matters identified within the papers? That is agreed. The committee will now move into private session.